Law guide: Employment

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Unfair dismissal and redundancy payments

Unfair dismissal and redundancy payments

Not every employee is eligible to make a claim for unfair dismissal or a redundancy payment. There are certain requirements that must be met before they are able to lodge a claim with the employment tribunal.

Who can claim?

In addition to a contractual claim for wrongful dismissal and claims of discrimination, there are two further claims that are available to an employee on termination of their employment. These claims arise as a result of statutory rights given to him or her, namely the right to a redundancy payment and the right not to be unfairly dismissed.

These claims differ from claims of wrongful dismissal and discrimination in many respects, most notably because not every employee is eligible to present a claim for redundancy or unfair dismissal.

In order for employees to succeed with a claim for a redundancy payment or to proceed with a complaint of unfair dismissal, they must:

  • Be an employee
  • Have been dismissed
  • Have been continuously employed for the requisite qualifying period
  • Not have validly contracted out their rights
  • Not have entered into an illegal contract or taken part in unprotected industrial relations

Employees only

Before any person can even consider a claim for a redundancy pay or unfair dismissal, they must be 'an employee'. An employee is defined as an individual who works under a contract of employment. There is a distinction between an employee, an independent contractor and a worker. The difference between an employee and a worker is not always easy to pin down, but the employee works under greater control than a worker.

Working outside Great Britain

An employee need not work in Great Britain in order to qualify for protection under the Employment Rights Act 1996 (or Employment Rights (Northern Ireland) Order 1996). In order for UK law to apply in a particular case, there must be some proper connection with the UK first, i.e. the features of the employment or other circumstances of the case are such that the case has a closer connection with the UK than with other countries, and where other aspects of the situation would also be covered by UK law.

Qualifying period of continuous employment

An employee must have been continuously employed for 2 years (or 1 year for employees in Northern Ireland) before qualifying to make a complaint for unfair dismissal, unless the employee has been dismissed for certain 'automatically unfair' reasons, in particular:

  • Pregnancy and all reasons relating to maternity
  • Taking time off for parental leave, shared parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
  • For acting as an employee representative and trade union membership grounds and union recognition
  • Taking time off for jury service
  • For making a protected disclosure (generally known as 'whistleblowing')
  • Due to any of six circumstances relating to health and safety specified in the EC Health & Safety Directive 89/391 (e.g. whistleblowing on health and safety breaches)
  • For claiming rights under the Working Time Regulations and the National Minimum Wage
  • Claiming certain specific statutory rights
  • Exercising rights under part-time or fixed-term employee regulation

In England, Wales and Scotland, an employee can claim unfair dismissal if they were dismissed because of their political opinions or affiliations. They do not need to be continuously employed for the qualifying period in order to make this claim. However, their dismissal will not be treated as being automatically unfair.

Note also that discrimination claims don't require two years' service.

An employee must have two years' continuous employment, however, in order to qualify to make a claim for a redundancy payment.

Signing away rights

If the employee has raised their claim with their employer prior to making a claim at an employment tribunal and, following negotiations, they have agreed a settlement then they should be asked to enter into a 'settlement agreement' (a.k.a. a 'compromise agreement') in order to formally settle their claim.

The terms of the settlement agreement will usually specify the amount of compensation to be paid to the employee and in return, the employee (having received independent legal advice) will agree not to pursue certain legal claims that they may have against their employer that relate to their employment and its termination (as well as agreeing to any further conditions that the employer may impose). Consequently, if the employee has signed a legally binding settlement agreement, the employee may be prevented from pursuing proceedings before an employment tribunal.

See the section on Settlement agreements for further information.

Illegal contracts and unprotected industrial action

Illegal contracts

If the employee's contract is illegal (such as where an employee does not have the necessary immigration rights to work or remain in the country) or if the employee knows that it is being operated unlawfully (the parties use an otherwise legal employment contract to undertake unlawful activities such as where the employer and employee enter into an arrangement to evade PAYE or national insurance payments) then they will not be able to pursue a claim for unfair dismissal or a redundancy payment. The reason for this is that it would be against public policy to legitimise an illegal contract.

Whether or not an employee will be able to pursue a claim in the employment tribunal will depend of the facts of each case. However, the courts will consider the following:

  • The extent of the employee's knowledge of the illegality – whether the employee knew that something illegal was going on
  • If the employee gained any benefit from the unlawful act

Unprotected industrial action

Industrial action, such as strikes, should only take place after a trade union has complied with certain strict statutory requirements which include balloting their members and serving notice on the employer. If these requirements have been complied with then the industrial action will be 'protected' meaning that an employer will not be able to issue civil proceedings against the trade union and will not be able to fairly dismiss their members for taking part in any action.

However, if the trade union fails to follow the correct procedures or if their members take unauthorised action, the strike (or picketing) will be unlawful and therefore 'unprotected'. In such circumstances, an employer may fairly dismiss any employees who take part in the industrial action although we would recommend that legal advice should be sought before making any dismissals.

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